Reducing contract performance security under Law No. 44-FZ
After partial performance, a business may not need to maintain the original security until final completion. When reduction is possible, how to recover part of a cash deposit, what happens to an independent guarantee and which conditions prevent reduction.
Performance security may decrease in proportion to obligations accepted and paid for by the customer.
For cash security, suppliers may request a corresponding refund. For an independent guarantee, the maximum claim against the guarantor decreases.
What reducing performance security means
At signing, the supplier provides the prescribed security.
This may be:
- an independent guarantee;
- cash deposited in the customer’s account.
The customer’s financial risk falls as obligations are fulfilled. Legislation therefore allows proportional reduction of the remaining security.
The amount in the notice, draft contract and security provided.
Contract obligations accepted and paid for by the customer.
The amount continuing to secure the supplier’s remaining obligations.
Acceptance, payment and customer reporting in the contract register matter.
Reduction, replacement and exemption differ
| Procedure | What happens | When it applies |
|---|---|---|
| Security reduction | The amount securing remaining obligations decreases. | After acceptance and payment for part of the contract |
| Changing security method | Cash is replaced by a guarantee or vice versa. | During performance when suitable replacement security is provided |
| Providing new security | The original guarantee or cash is replaced with new security. | When changing guarantor, method or security terms |
| Exemption for small enterprises and socially oriented non-profit organisations | Security is not provided when statutory conditions are met. | Before signing, not during performance |
A supplier may simultaneously:
- reduce the security amount;
- replace cash with a guarantee;
- provide a new lower-value guarantee;
- replace one bank’s guarantee with another eligible guarantor’s.
The relief for eligible procurement participants applies before signing upon evidence of successfully completed contracts.
Conditions for reducing security
Goods supplied, work performed or services provided.
Results evidenced by contractual documents.
The customer has paid for accepted obligations.
The customer submitted performance and value information.
No unpaid customer claims for fines or late-performance penalties.
Performance reaches the level required where advances were paid.
For separately defined stages, security must be reduced following those stages when statutory conditions are met.
Without formally separate stages, reduction may still relate to accepted and paid obligations recorded in the contract register.
Accepted but unpaid obligations may not establish a proportional reduction entitlement.
How security reduction works
The supplier fulfils part of the contract.
The customer accepts goods, work, services or a stage.
The completed portion is paid under the contract.
The customer records performance and its value.
Security for remaining obligations decreases.
The mechanism depends on the security method.
For an independent guarantee, the maximum customer claim against the guarantor changes.
For cash security, the supplier may request the corresponding refund.
Calculating the revised amount
Reduction is proportional to obligations completed, accepted and paid for.
This formula applies where security was proportionate to the contract value and no additional factors affect the amount.
Illustrative example
Original security is 10% of the contract price.
After RUB 4.5 million of performance, RUB 7.5 million remains outstanding.
New security: RUB 1.2 million × RUB 7.5 million ÷ RUB 12 million = RUB 750,000.
Security falls by RUB 450,000, which may be requested as a refund where cash was deposited.
Use the value of obligations whose completion the customer recorded.
Recovering part of cash security
Reduction does not mean the cash automatically reaches the supplier’s bank account that day.
Send the customer a request for a partial refund.
Include in the request
- supplier name and details;
- contract number and date;
- original security amount;
- completed portion;
- value accepted and paid;
- revised security calculation;
- refund requested;
- supplier bank details;
- relevant contract terms and Article 96 of Law No. 44-FZ.
The contract must set the refund period.
Generally it must not exceed 30 days after obligations are fulfilled, or 15 days for procurement restricted to small enterprises and socially oriented non-profit organisations.
For a partial refund, consider contract terms, performance date, register update and when the request was received.
What happens to an independent guarantee
The original amount in the guarantee is not necessarily automatically amended by a separate document when security decreases.
The law limits the customer’s claim to the security calculated from contract register information.
Check:
- whether performance was recorded;
- whether completed value is correct;
- whether the bank must be notified;
- effects on fees and guarantee availability;
- whether a replacement security method requires a new guarantee;
- whether the bank agreement specifies an amendment process.
Fee recalculation and restored guarantee availability depend on the guarantor agreement.
When a new guarantee may be needed
New security is arranged if the supplier:
- changes security method;
- changes guarantor;
- changes the security period;
- replaces deposited cash with a guarantee;
- must replace security after a bank licence is revoked;
- agrees a new structure with the customer and guarantor.
How an advance affects reduction
Where an advance is paid, the supplier must first perform obligations covering that amount.
Reduction may be unavailable until the required performance level is reached, even after some delivery or work.
| Situation | Checks | Practical takeaway |
|---|---|---|
| No advance | Acceptance, payment and register data | Security decreases proportionately. |
| Ordinary advance | Accepted performance at least equals the advance. | Reduction is restricted until the advance is covered. |
| Advance under Treasury oversight | Required accepted performance exceeds the advance subject to oversight. | Special Article 96 conditions apply. |
| Staged contract with an advance | Advance, performance and payment for each stage | Calculate against the contractual stage structure. |
Distinguish actual performance from funds previously paid by the customer.
How fines and penalties affect reduction
Reduction requires no outstanding customer claims for contractual penalties.
The relevant issue is an asserted, unfulfilled claim as well as the breach itself.
Checks before requesting a reduction
- whether a claim was sent;
- whether fines or penalties were assessed;
- whether claimed amounts were paid;
- whether penalties were withheld from contract payment;
- whether settlement is documented;
- whether performance volumes remain disputed.
Unresolved penalty claims may prevent the supplier meeting reduction conditions.
Can warranty security be reduced?
Distinguish warranty security from security for main contract performance.
Warranty security may be replaced or its method changed.
The law does not provide the same proportional reduction mechanism as for performance security.
Separate warranty security may continue after the main supply ends.
Supplier’s step-by-step process
Find security, stages, acceptance, payment and cash refund clauses.
Reconcile certificates, acceptance documents, value and payment dates.
Confirm correct performance information has been recorded.
No unfulfilled customer penalty claims should remain.
Compare the advance and accepted performance.
Determine security for the outstanding portion.
For cash security, request the surplus refund.
For a guarantee, check effects on availability and guarantor documents.
Attachments to the request
Include security and refund provisions.
Certificates, UPD universal transfer documents, delivery notes or other performance evidence.
Evidence of the customer’s relevant transfer.
Original amount, completed value and remaining security.
Account for the partial refund.
Customer performance records.
Common supplier mistakes
Acceptance, payment and register updates are overlooked.
The value may not yet be accepted or paid.
Performance does not yet cover funds advanced.
Unpaid claimed fines or penalties prevent reduction.
A refund is requested without new security when changing method.
Performance records are incomplete or incorrect.
Guarantee terms may not allow fee recalculation.
The general proportional performance mechanism does not apply.
Working capital effects
Cash security removes funds from circulation during delivery.
A partial refund may fund:
- goods for the next stage;
- materials;
- subcontractors;
- payroll and taxes;
- repayment of delivery finance;
- new procurement participation;
- a new independent guarantee.
For guarantees, lower contract risk may release availability if bank terms permit.
Plan use only after checking refund timing and actual customer performance.
When to seek help
Assessment helps where the customer has not recorded performance, refuses a partial refund or calculates remaining security differently.
Help may also be needed to:
- replace cash with a guarantee;
- replace one bank guarantee with another;
- reduce pressure on guarantee availability;
- finance the next stage;
- account for advances and Treasury oversight;
- resolve a fine or penalty claim;
- recalculate security after contract amendments.
Release security while protecting contract compliance
NG Finance helps Russian LLCs and individual entrepreneurs assess security structure, calculate the balance, select an independent guarantee and consider further delivery finance.
Assessment does not replace customer or bank decisions or legal advice, but helps prepare documents and identify a realistic process.
Submit a requestFrequently asked questions
Does security decrease automatically?
The basis is performance information recorded by the customer. For cash refunds, the supplier submits a request.
Can security decrease after signing an acceptance certificate?
The certificate alone may be insufficient. Obligations must be accepted, paid and recorded.
Can cash be partially refunded before final completion?
Yes, when proportional reduction conditions are met and the contract provides for the corresponding refund.
Does the bank need to consent to a guarantee reduction?
The law limits the customer’s claim by register data. Supplier–bank relations, fees and restored availability depend on the guarantor agreement.
Can cash be replaced with a guarantee?
During performance, the supplier may change method by providing compliant replacement security.
What if the customer has not updated the register?
Send a written request identifying completed obligations and acceptance and payment evidence. Incorrect register data may obstruct reduction.
Can security decrease when a penalty is assessed?
No unfulfilled customer fine or penalty claims should remain. Assess actual penalty settlement.
How does the customer’s advance affect reduction?
Performance must reach the statutory level before reduction may be available.
Can warranty security be reduced?
The same proportional reduction mechanism does not apply, although its security method may be changed.
When must the customer refund cash?
The contract sets the period, generally no more than 30 days, or 15 days for restricted small-enterprise and socially oriented non-profit procurement, from the statutory starting date.
This article provides general information. Reduction, calculations, refund timing, replacement procedures and party actions depend on the particular contract. Prepared using public sources: Article 96 of Law No. 44-FZ , Article 34 of Law No. 44-FZ , reducing contract performance security , changing the security method , warranty security .